Society comments on the simplification of European Sustainability Reporting Standards

The IR Society has responded to EFRAG's questionnaire on how to simplify the ESRS as part of the 'Omnibus' proposals, principally focusing on DMAs, which are of significant benefit to stakeholder understanding but require more guidance on recommended process to aid consistency, and interoperability, which is essential but needs to be carefully thought through and managed.

The Investor Relations Society

Office 605 Birchin Court, 20 Birchin Lane

London EC3V 9DU

European Financial Reporting Advisory Group (EFRAG)

35 Square de Meeûs

1000 Brussels (fifth floor)

Belgium

By email: info@efrag.org, and via online questionnaire

6^th May 2025

Dear Sir, Madam,

Re: EFRAG Questionnaire for public input on simplification of ESRS

Thank you for giving us the opportunity to respond to your questionnaire on how to simplify ESRS. This response is made on behalf of the UK’s Investor Relations Society (‘the IR Society’).

The IR Society represents Members working for publicly listed companies and investor relations focused service providers, to assist them in the development of effective two-way communication with the markets. It has approaching 800 Members, drawn mainly from the UK, including the majority of the UK FTSE 100, many of the FTSE 250 constituents and some from companies listed overseas.

The IR Society’s mission is to promote best practice in investor relations; to support the professional development of its Members; to represent their views to regulatory bodies, the investment community and Government; and to act as a forum for issuers and the investment community.

Our response has therefore been primarily constructed through the lens of a corporate issuer, and as such reflects the views of those very much at the ‘coal face’ of investor engagement and reporting, along with some examples of practical experiences and challenges that a review of the ESRS could help to address.

We have set out below our general, high level comments on those aspects of most relevance to our Members, which principally focus on DMAs and interoperability. In summary:

DMA: We believe DMAs are of significant benefit to stakeholder understanding, but require more guidance on recommended process, to aid consistency.

Interoperability: We also believe improving interoperability is essential, but needs to be carefully thought through and managed.

We have also identified certain ESRS specifics and data-points that we believe could benefit from rationalisation or removal. Finally, we have commented on the format/presentation of the sustainability statement, in particular, the need for greater flexibility and guidance to produce a standalone sustainability statement.

Given the format of the consultation (an online questionnaire), we have also submitted our comments via the online questionnaire, which is appended hereto.

DMAs

Firstly, we would like to emphasise the benefits of a double-materiality assessment (as opposed to a single/financial assessment), as it makes the outcomes more relevant to a wider variety of stakeholders and forms a much more rounded view of a company's impacts. The Society will therefore continue to encourage Members to conduct a DMA even if they may potentially fall out-of-scope for CSRD under the Omnibus proposals.

However, many corporates have struggled with value chain mapping, the limited opportunities to connect content beyond the annual report, and the growing length of reports – some now exceeding an additional 150 pages.

To help companies identify a manageable number of material issues, and to produce more consistent and comparable disclosures between companies, it would be helpful to have more definitive guidance on the recommended process to be followed for a DMA, including:

on the setting of thresholds – companies can set quantitative or qualitative thresholds to determine what is material enough to report. For example, companies can define a minimum severity score or financial threshold before including a topic (in practice, it seems that companies have, in some cases, set the threshold for material issues too low), and
whether internal and external stakeholder engagement should be sought and/or surveys conducted. One conundrum that issuers face is how different stakeholders’ views should then be weighted in the final DMA conclusions. For instance, if Group A says something is really material/important, but Group B disagrees, how should the issuer conclude in the DMA?

It would also be helpful to have more guidance around what constitutes decision-useful information, i.e. who the information is useful for - given the nature of double-materiality assessments, information should be useful for more stakeholders other than just investors - and what decisions are likely to be made using the information given. In turn, this should make it easier to define outcomes of the assessment as IROs. We therefore strongly encourage EFRAG to engage with end users in order to ask and understand how they really use these disclosures and what they find helpful/unhelpful.

Given consultation respondents are usually the most engaged (rather than necessarily expressing a majority view), we are pleased to see that EFRAG’s approved work plan (which sets out the key activities, deliverables, and stakeholder engagement that EFRAG will undertake) includes stakeholder outreach in the form of interviews and workshops prior to the public consultation on the Exposure Drafts. We call on EFRAG to ensure that all relevant stakeholder groups/end users are involved in this outreach so that they can provide feedback on how they really use these disclosures and what they find helpful/unhelpful.

Interoperability

Improving interoperability is a priority. The key standards to focus on would be those issued by the ISSB, which now includes TCFD, TPT-aligned transition plans (now also under the ISSB umbrella), TNFD (which has just signed an MoU to integrate TNFD recommendations into the ISSB’s ongoing work) and the CDP.

It would be helpful to consider allowing more ‘wholesale’ inclusion of disclosures against a framework where requirements overlap substantially. TCFD is a good example here where it would be helpful to be allowed to insert the company’s TCFD report into the Sustainability Statement, rather than working through a similar set of ESRS data points. This is likely to be particularly helpful for those in the scope of CSRD through an EU subsidiary or as a Third Country, and in light of the expected adoption of ISSB standards in the UK in due course.

It would also clearly be beneficial for EFRAG to continue offering interoperability guidance on how companies can streamline workflows related to complying with multiple frameworks. Key areas where interoperability guidance could be more useful include mapping where frameworks overlap and where the differences are, being consistent in how metrics are defined, and explaining how cross-references or linkages can be best applied.

In the medium-term, it would be worth exploring how a greater number of technology-driven solutions can be used to improve reporters’ abilities to use multiple standards and frameworks.

ESRS specifics

Repetition

Under the E, S and G sections, it would be helpful to remove repetition between data points.

Model answers and depth of data

As mentioned above, we suggest EFRAG considers end-users (ie the very stakeholders the ESRS are meant to benefit) and asks for their feedback on what is useful in real-world application. With the first set of CSRD-compliant reports now published, it would also be valuable to have guidance on the depth of data required for narrative responses in particular, and pointing to reporting examples would be very helpful here (beyond what EFRAG have already published).

The UK’s FRC follows this approach to very good effect in its guidance, for example, the report from the FRC following its 2024 annual review of corporate reporting shows the effective use of best practice examples to support the guidance provided – see ‘FRC publishes Annual Review of Corporate Reporting’.

Fewer mandatory disclosures

The number of data-points that are currently required under the ESRS is so vast it risks lowering the quality of data provided and, in turn, the meaningful conclusions that can be drawn. Low quality data increases the risks of inaccuracies and decreases the reliability of disclosures. Additionally, assuring said data is more difficult and the variability between assurance providers increases.

We therefore support the view that a reduction in the number of mandatory disclosures would maintain the ESRS's thoroughness while enabling companies to prioritise material data. Currently, if a disclosure is not deemed relevant, an explanation is required as to why in order to meet assurance requirements which can be onerous and, arguably, of relatively little value in terms of providing decision-useful information.

Data-points

Scope 3

When looking at specific data-points, those related to scope-3 emissions are probably among the most controversial and challenging. While this can be a valuable disclosure to stakeholders, there are often doubts around how data from third parties can be reliably accessed, which can result in a lack of trust around scope 3 disclosure. Our 2023/24 Member survey (link) indicates:

a clear challenge around reliability/measurement given:
- well over half of companies were not using any direct measurement, instead relying on estimates and/or third party providers; and
- there is a divergence in methodologies of measurement, with the largest companies more likely to be using direct measurements and have SBTi-approved targets; and

the vast majority of respondents [then] reporting scope 3 cited ‘difficulty in obtaining data or estimates’ as a challenge or disincentive, with nearly 70% citing ‘lack of confidence in ability to measure accurately’.

We note the Science Based Targets Initiative (SBTi) has now released the draft of its Corporate Net-Zero Standard Version 2. This updated version promotes a more targeted approach, encouraging companies to focus on the most climate-relevant parts of their value chain, rather than relying on fixed percentage-based targets.

It also supports the use of non-emissions-based metrics—such as sustainable procurement practices or net-zero-aligned revenue—particularly when direct emissions data is difficult to obtain. We note that SBTi v2 and CSRD/ESRS are largely aligned in spirit, though they differ in focus and application. We would propose that EFRAG considers adopting a similar approach to SBTi v2 for the CSRD and ESRS.

Biodiversity and nature-related impacts

Another set of data points that would benefit from increased clarification are those related to biodiversity and nature-related impacts. How companies obtain detailed metrics on land use, species affected, and restoration measures could be better defined due to a lack of standardised methodologies.

Additionally, since many reporters have such huge footprints, there are many practical challenges associated with measuring the impact within such complex supply chains.

Value chain, connectivity and length of ARAs

As mentioned above, many corporates have also struggled with value chain mapping, the limited opportunities to connect content beyond the annual report, and the growing length of reports – some now exceeding an additional 150 pages.

Format and presentation of the sustainability statement

UK reporters would welcome greater flexibility and guidance to produce a standalone sustainability statement. This would help to avoid increasing the overall length and complexity of the annual report and ensure that the UK Strategic Report remains focused on the most material information for investors. Additionally, reporters would benefit from greater flexibility to reference or link to relevant content elsewhere in corporate publications or on digital platforms. This would support a more streamlined and accessible sustainability statement, reduce duplication, and enhance the usability of disclosures for different stakeholder groups.

We hope you find these comments useful. Please do not hesitate to make contact if you have any questions.

Yours faithfully,

Liz Cole

Head of Policy and Communications

Investor Relations Society

(Email: enquiries@irsociety.org.uk, Tel: + 44 (0) 20 3978 1980)

Laura Hayter

Chief Executive Officer of the Investor Relations Society

(Email: enquiries@irsociety.org.uk, Tel: + 44 (0) 20 3978 1980)

Ross Hawley

Chair of the Investor Relations Society’s Policy Committee

(Email: enquiries@irsociety.org.uk, Tel: + 44 (0) 20 3978 1980)

APPENDIX – ONLINE QUESTIONNAIRE

(Society answers are in italics)

SECTION 2 – GENERAL ASSESSMENT (OPTIONAL)

As preparer/user/other stakeholder, could you share your overall assessment about the implementation challenges and benefits that you have experienced or observed?

SECTION 3 – QUESTIONS

1. PART 1 – HOW TO IMPROVE THE MATERIALITY ASSESSMENT

The Materiality Assessment process is critical to establish the perimeter of the sustainability statement and pivotal to ensure that undertakings only report material information, that they do not report unnecessary information nor dedicate excessive resources to the materiality assessment process.

Initial feedback seems to suggest that required disclosures on the process may be too detailed and the outcome of the process may lead to disclose too many/too detailed IROs. The Omnibus proposals have identified this area as to be clarified.

1.1. From your perspective (preparer/user/others), please share your suggestions on how to improve the ESRS provisions on materiality indicating the most critical and the most useful elements, in relation to *

the process to determine material matters, including how to factor implemented mitigation and prevention actions in the materiality assessment and how to define thresholds striking the right balance between completeness and decision-usefulness of information.

Firstly, we would like to re-emphasise (as mentioned in Section 1 above) the benefits of a double-materiality assessment (as opposed to a single/financial assessment), as it makes the outcomes more relevant to a wider variety of stakeholders and forms a much more rounded view of a company's impacts. The Society will therefore continue to encourage Members to conduct a DMA even if they may potentially fall out-of-scope for CSRD under the Omnibus proposals.

With a view to helping companies identify a manageable number of material issues, and to producing more consistent and comparable disclosures between companies, it would be helpful to have more definitive guidance on the recommended process to be followed for a DMAs, including:

on the setting of thresholds – companies can set quantitative or qualitative thresholds to determine what is material enough to report. For example, companies can define a minimum severity score or financial threshold before including a topic (in practice, it seems that companies have, in some cases, set the threshold for material issues too low ), and
whether internal and external stakeholder engagement should be sought and/or surveys conducted. One conundrum that issuers face is how different stakeholders’ views should then be weighted in the final DMA conclusions. For instance, if Group A says something is really material/important, but Group B disagrees, how should the issuer conclude in the DMA?

the process to determine material information to be reported (information materiality, ESRS 1 – paragraph 31 and 34)

As mentioned above, with a view to helping companies produce more consistent and comparable disclosures, it would be helpful to have more definitive guidance on the recommended process to be followed for a DMAs.

the value chain

As mentioned above, many corporates have struggled with value chain mapping.

PART 2: HOW TO STREAMLINE NARRATIVE INFORMATION

Narrative information is a key part of sustainability reporting, in particular with respect to governance, strategy, business model, as well as policies, actions and targets (PATs). It is a key factor to meet the quality characteristics of relevance of information and fair presentation[LS1] of the situation of the undertaking with respect to its sustainability matters. However, narrative information is difficult to compare. In determining the content of narrative information to be reported per disclosure requirements, ESRS combine a principles-based disclosure objective with a list of “shall” datapoints.

Initial feedback seems to suggest that the “shall disclose“ datapoints in ESRS Set 1 may be too detailed and too prescriptive in that regard and that a proper balance between relevance/fair presentation, comparability and preparation effort has been difficult to achieve. The Omnibus proposals suggest to consider this point carefully for burden reduction purposes.

2.1. From your perspective (preparer/user/other), please share your suggestions on how to simplify narrative information, in relation to: *

The options to reduce the number of “shall” datapoints (DPs):

Deleting datapoints that are not critical

[Scope 3:] When looking at specific data-points, those related to scope-3 emissions is probably one of the most controversial and challenging. While this can be a valuable disclosure to stakeholders, there are often doubts around how data from third-parties can be reliably accessed, which can result in a lack of trust around scope 3 disclosure. Our 2023/24 Member survey (link) indicates:

a clear challenge around reliability/measurement given:
- well over half of companies were not using any direct measurement, instead relying on estimates and/or third party providers; and
- there is a divergence in methodologies of measurement, with the largest companies more likely to be using direct measurements and have SBTi-approved targets; and
the vast majority of respondents [then] reporting scope 3 cited ‘difficulty in obtaining data or estimates’ as a challenge or disincentive, with nearly 70% citing ‘lack of confidence in ability to measure accurately’.

The Science Based Targets initiative (SBTi) has released the draft of its Corporate Net-Zero Standard Version 2. This updated version promotes a more targeted approach, encouraging companies to focus on the most climate-relevant parts of their value chain, rather than relying on fixed percentage-based targets.

It also supports the use of non-emissions-based metrics—such as sustainable procurement practices or net-zero-aligned revenue—particularly when direct emissions data is difficult to obtain. We note that SBTi v2 and CSRD/ESRS are largely aligned in spirit, though they differ in focus and application. We would propose that EFRAG considers adopting a similar approach to SBTi v2 for the CSRD and ESRS.

[Biodiversity and nature-related impacts:] Another set of data points that would benefit from increased clarification are those related to biodiversity and nature-related impacts. How companies obtain detailed metrics on land use, species affected, and restoration measures could be better defined due to a lack of standardised methodologies. Additionally, since many reporters have such huge footprints, there are many practice challenges associated with measuring the impact within such complex supply chains.

[Value chain, connectivity and length of ARAs:] As mentioned above, many corporates have also struggled with value chain mapping, the limited opportunities to connect content beyond the annual report, and the growing length of reports – some now exceeding an additional 150 pages.

Other – please specify.

Repetition:

Under the E, S and G section, it would be helpful to remove repetition between data points.

Model answers and depth of data:

PART 4: HOW TO ADDRESS THE SIMPLIFICATION OF THE STANDARDS (STRUCTURE AND PRESENTATION) AND THE NEED FOR INTEROPERABILITY

Initial feedback seems to suggest that the current structure and presentation of reporting requirements in the standards may be difficult to understand and use and may have contributed to the inclusion of repetitive and duplicated content within the sustainability statement.

In addition, to avoid unnecessary regulatory fragmentation that could have negative consequences for undertakings operating globally, ESRS Set 1 has been drafted with the objective to contribute to the process of convergence of sustainability reporting standards at global level. The Omnibus proposals suggest to further enhance the already very high degree of interoperability with global sustainability reporting standards.

5.2. Regarding interoperability, please:

If you are a user/other type of stakeholder.

Share your views on the importance and usefulness of interoperability from your perspective:

It would be helpful to consider allowing more ‘wholesale’ inclusion of disclosures against a framework where requirements overlap substantially. TCFD is a good example here where it would be helpful to be allowed to insert the company’s TCFD report into the Sustainability Statement, rather than working through a similar set of ESRS data points. This is likely to be particularly helpful for those in scope of CSRD through an EU subsidiary or as a Third Country, and in light of the expected adoption of ISSB standards in the UK in due course.

In the medium-term, it would be worth exploring how a greater number of technology-driven solutions can be used to improve reporters’ abilities to use multiple standards and frameworks.

PART 6 – ANY OTHER COMMENT OR SUGGESTION

For instance, among others, in relation to format and presentation of the sustainability statement and its relationship with other parts of the management report, the communication of the company, the reporting boundaries, etc.

Published 6 May, 2025